Delivering this year's Godkin lectures at
Harvard's Kennedy School of Government, university president
Lawrence H. Summers defended free trade and globalization while
bemoaning that for too many both in and out of government: "Mercantilist
economics is hard-wired into the brain." See "Globalization
Defended," Harvard Magazine (July-August 2003), p.
75. Free trade rests on the principle of comparative advantage
first enunciated by the classical economist David Ricardo, who
assumed fixed exchange rates among currencies redeemable in specie
at fixed prices, not politically managed floating exchange rates
among unlimited paper currencies -- a preference apparently hard-wired
into the brains of most modern economists, including that of
the former U.S. treasury secretary.

After World War II, the Bretton Woods agreements
established a system of fixed exchange rates tied to the U.S.
dollar, which was convertible into gold at $35/ounce upon request
by foreign central banks. The system collapsed in 1971 due to
the excessive buildup of dollars overseas arising from abuse
of what General Charles de Gaulle called an "exorbitant
privilege," namely the ability of the United States to meet
its balance of payments deficits regularly in its own currency,
making them in the words of his monetary advisor, Jacques Rueff,
"deficits without tears."

To the cheers of most economists, the Bretton
Woods system was replaced in 1973 by the present regime of floating
exchange rates having no fixed relation to each other or to gold.
Responding more to central bank interest rate policies, speculative
capital flows, and official market interventions than to real
trade balances and purchasing power parities, these floating
-- frequently gyrating -- rates only complicate and disrupt free
trade. But whether they can seriously impede or even survive
globalization is another question altogether. Globally acceptable
unlimited paper currencies are a very recent phenomenon; globally
acceptable money -- first silver and later gold -- has existed
for centuries.

The same technology that is responsible for
globalization greatly facilitates the monetary use of gold, not
only eliminating many of the practical inconveniences of old-fashioned
gold coinage, but also making operation of a fully reserved system
based on the law of bailments at least as economic as a fractional
reserve system operated by banks on principles of credit. Computers
and the Internet have created a world in which gold can serve
directly as money without any assistance from governments or
banks. Thus the gold standard, never the "barbarous relic"
that Lord Keynes claimed, might yet be rendered a true relic
by technological progress.

While this new world of gold money promises
to look more like the nineteenth century heyday of the gold standard
than the twentieth century's monetary chaos, the transition will
be wrenching, especially for governments that have made deficit
finance and exchange rate management a way of life, or have allowed
their official reserves to become overloaded with dollars and
underweight in gold. Among the G-7 nations, Canada faces the
stiffest challenges because in addition to scoring poorly on
all these counts, it has failed to resolve fundamental constitutional
discord over the proper place of Quebec, the second largest provincial
gold producer, within the confederation.

What passes for an international monetary
system today is largely nothing more than a dollar recycling
program that leaves American consumers with more than their fair
share of the world's merchandise and foreign central banks with
most of its excess dollars. Worse, the system appears incapable
of rebalancing itself. As levels of U.S. debt and deficits continue
to scale new heights, so do official foreign dollar holdings.
These now approach $1 trillion, including almost $750 billion
of U.S. treasury debt ($100 billion more than the U.S. Federal
Reserve itself holds), and $200 billion of federal agency obligations.
See "$1 trillion catch basin," Grant's Interest
Rate Observer (June 20, 2003), p. 1.

Dollar balances generated by large trade surpluses
with the United States reflect exports that are the driving force
in the economies of many of its trading partners, making them
reluctant to convert these balances into local currencies and
risk choking off their own export-led prosperity with strengthening
exchange rates. See Richard Duncan, The Dollar Crisis
(John Wiley & Sons (Asia), 2003), esp. pp. 90-119. On the
other hand, by holding excess dollar balances, foreign central
banks effectively monetize U.S. government debt in much the same
manner as the Federal Reserve itself. Left unrestrained, this
process ultimately threatens to destroy the value of the dollar
-- and thus of foreign dollar reserves -- through inflation.

As discussed in Gibson's
Paradox Revisited: Professor Summers Analyzes Gold Prices,
two centuries of historical data demonstrate that in the absence
of government interference, the value of gold moves inversely
to real long-term interest rates. Under the gold standard, the
value of gold was the reciprocal of the general price level since
the gold price was fixed. In a free gold market, the value of
gold is determined by its price. Accordingly, except as official
intervention may for a time suppress free market forces, low
nominal bond yields and low inflation as measured by the general
price level should not be expected to coexist with low gold prices.
Either real yields must rise through some combination of higher
nominal rates and further disinflation or even deflation, or
gold prices must rise.

On June 15, 2003, in his semi-annual
economic report, Fed chairman Alan Greenspan assured Congress
that the Federal Reserve "...stands ready to maintain a
highly accommodative stance of policy for as long as it takes
to achieve a return to satisfactory economic performance."
Responding to the inflationary implications of this statement
in combination with record federal budget deficits for the foreseeable
future, prices on the benchmark 10-year Treasury note and the
defunct 30-year Treasury bond immediately fell, driving up their
yields and setting off the sharpest decline in bonds in more
than a decade. See, e.g., D. Chapman, "Bond
Massacre!," SafeHaven (July 30, 2003).

However, particularly in a world economic
environment marked by sub-par growth, low short-term interest
rates in the United States put pressure on its major trading
partners as well as other trading nations to follow suit lest
higher rates trigger unwanted appreciation of their own currencies.
Indeed, even a nation with as long a tradition of sound money
as Switzerland is not immune. See G.T. Sims, "Swiss Central
Bank Leaves Itself With Limited Room to Maneuver," The
Wall Street Journal (August 11, 2003), p. A2.

In 2002, according to foreign
trade statistics published by the U.S. Census Bureau, Canada's
exports to the United States amounted to almost US$210 billion
versus imports of just over $160 billion, leaving Canada for
the third successive year with a roughly $50 billion trade surplus
from the world's largest bilateral trading relationship. Therefore,
maybe not quite as surprisingly as some have claimed, on the
day of Mr. Greenspan's congressional testimony, the Bank of Canada
lowered its benchmark interest rate, causing the Canadian currency
to drop sharply against its American counterpart. See, e.g.,
B. Little, "This
central bank sure likes surprises," The Globe and
Mail (July 16, 2003).

Having overdosed on the "strong dollar"
of which Mr. Summers was a major architect, many nations -- Canada
prominently among them -- are now addicted to exchange rates
that reflect less than the full domestic purchasing power of
their currencies. But "beggar-thy-neighbor" today promises
"beggar-thyself" tomorrow as the U.S. dollar leads
all paper currencies in a mad scramble to prove once more the
truth of a statement regularly attributed to Voltaire: "Paper
money eventually returns to its intrinsic value -- zero."
(Note: Diligent search has so far failed to unearth a correct
citation to the original statement, presumably in French.)

The Canadian and U.S. dollars both trace their
ancestry to the same source: the Spanish milled dollar that circulated
widely in North America prior to the American Revolution. However,
the era of unlimited fiat money has witnessed a sharp divergence
in American and Canadian tastes regarding the physical form of
their respective dollars. Americans, who have never cottoned
to two-dollar bills and resisted the Susan B. Anthony one-dollar
coin, overwhelmingly prefer their one-dollar bills with George
Washington's portrait. Canadians, on the other hand, have embraced
their one-dollar "looney" coin with sufficient enthusiasm
to warrant a two-dollar coin, the "tooney," and permit
the retirement of all one and two-dollar bills.

Gold mining played an important role in the
economic development of Canada. See, e.g., A. Hoffman,
Free Gold: The Story of Canadian Mining (McGraw-Hill,
original ed. 1947, republished 1982). Today Canada ranks seventh
among the world's gold-producing nations, turning out roughly
150 metric tonnes of newly mined gold annually, most of which
comes from the provinces of Ontario, Quebec and British Columbia
as shown in the chart below, which has been prepared from data
available from Statistics Canada, Ontario Mineral and Exploration
Statistics, and Ministère Energie et Ressources du Québec.
Production at Hemlo began in 1985.

Based on figures from the International Monetary
Fund's series on International Financial Statistics, the
following table shows the official gold reserves of various nations
at year-end 1985, 1993 and 2002. Canada sold 437 tonnes of gold
from 1986 through 1993, reducing its gold reserves from 625 tonnes
at the end of 1985 to less than 190 tonnes at the beginning of
1994, when it disposed of another 67 tonnes. Having sold an average
of nearly 13 tonnes per year since, Canada is the world's only
major economic power to have virtually eliminated its gold reserves.

The table reveals a couple of subsidiary points
also worth noting. First, the three "Other Euro Area"
nations that have sold significant portions of gold reserves
once as large or larger than Canada's are no longer trying to
maintain national currencies. Second, not only have China and
Russia added modestly to their gold reserves, but there is some
reason to believe that China may have additional unreported gold
reserves. What is more, by adding 3.4 million ounces in 2001
after reporting 12.7 million ounces every year from 1981 through
2000, China may be signaling a positive view on the future role
of gold in the international financial system. See, e.g.,
"Focus:
China's gold rush," China Daily (September 25,
2003).

Diligent investigation last year by an interested
Canadian citizen failed to draw from the Canadian government
any explanation for the sale of its gold reserves. See E. Steer,
"When
Irish Eyes Are Smiling," LeMetropoleCafe (November
13, 2002). Joe Clark's short-lived minority government fell before
it had an opportunity to carry out a plan announced in December
1979 to sell some gold to diversify Canada's official reserves.
This idea made some sense at the time, particularly as gold prices
rallied to record highs in early 1980. However, diversifying
foreign exchange reserves is one thing; eliminating all gold
reserves is quite another.

Although the Bank of Canada commissioned a
full
report to justify its handling of foreign gold during World
War II and obligingly provides figures on Canada's gold sales
since 1985, it directs all inquiries regarding the reasons for
these sales to the federal government's Department of Finance.
Suffice it to say that here, despite months of effort that ended
at the "risk management" office, Mr. Steer ran into
the proverbial stone wall. However, he did extract an intriguing
admission:

But in the dying seconds of that last phone conversation with
the "risk management" department, the person I was
speaking to dropped a bombshell! We had spoken twice before,
and he was a real decent and honourable fellow. This is what
I remember him saying; "Well Ed, you may not be happy with
the answer you got, but I can tell you that your enquiries
regarding what happened to Canada's gold, set off alarm bells
all over the Department of Finance. There are two things that
this department is extremely sensitive about, and that is one
of them." If he hadn't said that, this article would
never have been written. [Emphasis supplied.]

Absent any official explanation, Mr. Steer
offers his own fascinating theory to explain Canada's gold sales
and invites others to do the same. He suggests that at the 1985
"Shamrock Summit" in Quebec, Ronald Reagan obtained
Brian Mulroney's support for a plan to bankrupt the old Soviet
Union by suppressing prices for oil and gold, its two major sources
of hard currency. On this hypothesis, Canada's gold sales were
its unsung but important contribution to winning the Cold War,
and they had the additional and not wholly incidental effect
of burnishing the vain Mr. Mulroney's image with his fellow world
leaders.

Compared to the United States and other major
western powers, Canada's gold reserves in absolute size were
rather modest. Assuming the existence of the plan suggested,
and as Mr. Steer himself mused, it seems rather unlikely that
Canada would have been asked or have agreed to shoulder almost
the entire burden of gold sales by itself. Other internationally
coordinated schemes to control gold prices, e.g., the
London Gold Pool from 1961 to 1968, have not put most of the
burden on a single country. What is more, by ultimately declining
to support Mr. Reagan's "Star Wars" defense initiative,
the Mulroney government passed up what for Canada would have
been a far cheaper as well as more effective means to squeeze
the finances of the Soviet Union, which in any event had collapsed
before Canada's gold sales really shifted into high gear in 1992.

Countries do not unload large chunks of their
gold reserves lightly. More often than not even gold sales ostensibly
undertaken to diversify official reserves are in fact motivated
by reasons touching more important national interests or even
national survival. As prime minister from 1984 to 1993, Mr. Mulroney
faced two problems that by historic standards might have warranted
gold sales if they could have contributed to a solution: securing
a comprehensive trade agreement with the United States and dealing
with the constitutional challenge presented by the separatist
movement in Quebec.

Almost immediately upon taking office, Mr.
Mulroney set about making good on his campaign promise to "refurbish"
Canadian-U.S. relations, which had fallen into serious disrepair
under his predecessor, Pierre Eliot Trudeau. See, e.g.,
K.R. Nossal, "The
Mulroney Years: Transformation and Tumult," Policy
Options (June-July 2003). The new prime minister, in a reversal
of his earlier policy stance against free trade, soon committed
his government to the campaign that culminated in the Canada-US
Free Trade Agreement (signed January 2, 1988; effective January
1,1989) and later the North
American Free Trade Agreement (effective January 1, 1994).

The Canadian government appointed its chief
trade negotiator in November 1985, and trade negotiations with
the U.S. representative began in Ottawa the following May. But
a year later, with the negotiations stalled and American support
for an agreement waning, the outcome remained very much in doubt.
Then, as Michael Hart recounts in A
History of Canada-US Free Trade (1999 conference paper, part
8):

The pundits and pessimists in both countries, however, were
proved wrong. The Canadian government stuck to its guns and determined
that it had to have an agreement. Also surprisingly, both the
US administration and the Congress demonstrated that they were
prepared to come to terms with the hard issues and to look forward
rather than backward. In a dramatic series of events during the
fall of 1987, political leaders from both sides hammered out
a satisfactory package that had until then eluded the professional
negotiators.

The Iran/Contra
affair broke publicly in the fall of 1986, precipitating a strong
rally in gold prices which was met by sustained heavy selling
of gold on the Commodity Exchange in New York as well as indications
of intervention in the gold market by the U.S. Exchange Stabilization
Fund. See Complaint,
paragraphs 49, 63. The stock market crash in October 1987 gave
a further push to gold prices and triggered more official selling.

The U.S. government is always sensitive to
increases in gold prices of sufficient magnitude to reflect negatively
on the U.S. dollar. From around US$300/oz. in January 1985, gold
prices climbed to $500 in December 1987 before retreating to
$360 by the fall of 1989 and closing that year just over $400.
Particularly in light of the extraordinary events that accompanied
the three-year move to $500, the significant Canadian gold sales
that were initiated during this period must have come as good
news to the Reagan administration.

Whether these or later sales had any connection,
direct or indirect, to the Canadian government's strong interest
in securing a comprehensive trade agreement with the United States
must on the current state of the evidence remain a matter of
conjecture. However, what is not in doubt, even if not fully
apparent until the mid-1990's, is that on balance free trade
with the United States has transformed the Canadian economy and
substantially augmented the wealth of Canadians. Viewed in this
light, if a quid pro quo for the free trade pact were
the 125 tonnes of gold reserves sold in 1986 through 1989, many
and probably most Canadians would consider it real money well
spent.

The following chart highlights the impressive
growth of Canada's current account surplus and foreign exchange
reserves since 1989. It illustrates as well that while Canada's
gold sales up to that point were significant, they could also
plausibly be justified solely on the grounds of diversifying
official reserves. However, the chart also shows that as of the
end of 1989, Canada's gold sales had just begun a long descent
that would rapidly accelerate from 1991 to 1995 before assuming
a more gentle slope to near zero today. (Note: According to a
press release
from the Department of Finance, Canada's gold reserves were about
175,000 ounces as of August 31, 2003.)

If the documents
that comprise the Canadian constitution were integrated into
a single document in accordance with American constitutional
tradition, it would be written in both official languages and
the version in English would begin: "We the Peoples of Canada,
in Order to form a more perfect Confederation ... ." But
today, were such a document prepared, true candor would compel
that it open: "We the Politicians of Canada ... ."
What is more, were the original ratification procedures governing
the American constitution applied, the Canadian constitution
at least as revamped in 1982 would remain ineffective in Quebec
until approved by vote of a convention called for the purpose
or its equivalent.

Unlike the United States, Canada is a land
of multiple peoples, including native peoples and its two founding
peoples, the English speaking or anglophones (les anglos)
centered in Upper Canada (Ontario) and the French speaking or
francophone population which dominates Lower Canada (Quebec,
originally New France). Quebec was transferred from French to
British rule by the Treaty of Paris in 1763 following the complete
subjugation of French forces after their crippling defeat on
the Plains
of Abraham outside the fortified city of Quebec in 1759.

In 1774, faced with trying to govern Quebec's
predominantly French and Catholic population at the same time
that the American colonies were displaying decidedly rebellious
tendencies, the British Parliament passed the Quebec Act, which
recognized the important role of the Catholic Church in the province
and left French civil law in place. As a result, daily life in
the former New France continued pretty much as it had before
the conquest, and any immediate plans for trying to assimilate
the population to British ways were shelved.

Quebec was thus launched onto the political
trajectory that has made it both a unique province within Canada
and a unique cultural and political entity within North America.
For a comprehensive collection of materials in both official
languages on the history of Quebec, see Quebec
History (Internet Project, Marianopolis College, Montreal).

In most history books, the "Night of
the Long Knives" is the phrase that Hitler borrowed from
a popular German song to describe the purge carried out under
his orders on the evening of June 30, 1934. In Quebec, La
nuit des longs couteaux signifies the evening of November
4-5, 1981, when the premiers of seven English speaking provinces
reached agreement with the Trudeau government on terms for "patriating"
the Canadian constitution from Britain, but did so without informing
Quebec premier and Parti
Québécois leader René Lévesque,
allegedly in violation of a prior agreement among all eight premiers
-- the Gang of Eight -- to act on the matter only in concert.

Mr. Trudeau's version
of that evening is quite different, but whatever actually occurred,
the event has poisoned Quebec's relationship with the rest of
Canada ever since. While Mr. Levesque may have made some errors
or misjudgments in his dealings with the other premiers, Mr.
Trudeau was no doubt emboldened by the results of the first Quebec
referendum on sovereignty in 1980, when more than 60% of the
electorate voted against a proposal for sovereignty within an
economic association with Canada.

In the end, all Quebec's legal challenges
to patriation of the constitution without its assent were rebuffed.
Accordingly, as patriated under the Canada
Act, 1982 with the consent of nine provinces out of ten,
the new constitution has the force of law throughout Canada.
However, it lacks political legitimacy in Quebec, where it is
widely perceived as having been imposed on the founding people
who arrived first in "Kanata."
In trying to unite all Canada's peoples under the new constitution,
the politicians managed to deepen the divide between its founding
peoples, to reopen old wounds going all the way back to the conquest,
and to lay the groundwork for future constitutional disputes
that would imperil the nation itself.

In brief summary, patriation retained the
British North America Act (renamed the Constitution Act, 1867)
to which Quebec had assented, while at the same time adding the
Constitution Act, 1982. Its most important provisions included
Canada's first national Charter of Rights and Freedoms, which
intentionally excluded any mention of property rights, and new
and rather cumbersome procedures for amending the constitution
through action in Canada and without recourse, even if only pro
forma, to the British Parliament. See Constitution
Acts 1867 to 1982 (English); Lois
constitutionnelles de 1867 à 1982 (français).

Quebec's principal objections to the new constitution
centered on: (1) the omission of the right of veto over constitutional
amendments that Quebec claimed to possess, and had as practical
matter exercised, under the British North America Act; and (2)
the failure to make sufficient provision for, or to give adequate
recognition to, Quebec's distinct culture, customs and language.
In addition, since Quebec had adopted its own Charter
of Human Rights and Freedoms in 1975, including some protection
for property rights (ch. 1, s. 6), the new federal charter did
not carry as much appeal as in other provinces and posed a potential
threat to Quebec statutes, especially in the areas of language
and education.

In the years since patriation, successive
governments in Quebec have underscored the province's objections
to the new constitution by generally refusing to participate
in the new amending procedures as well as by regularly invoking
to the maximum extent permissible the so-called "notwithstanding
clause" (s. 33 of the Constitution Act, 1982), which allows
both the federal Parliament and the legislatures of the individual
provinces to override certain provisions of the Charter of Rights
and Freedoms. See D. Johansen et als., The
Notwithstanding Clause of the Charter (Parliamentary Research
Branch, Library of Parliament, 1997).

In 1987, the Mulroney government tried to
address Quebec's constitutional concerns through the Meech
Lake Accord, which proposed various amendments to the Constitution
Act, 1982, to satisfy the five proposals for change that Quebec
had affirmed would meet its objections, including the addition
of a provision stating: "The Constitution of Canada shall
be interpreted in a manner consistent with ... the recognition
that Quebec constitutes within Canada a distinct society."

Opposed by Mr. Trudeau (as well as Jean Chrétien,
the current prime minister, who assumed office in 1993), the
Meech Lake Accord expired in 1990, having failed to obtain the
required ratification by two provinces, Manitoba and Newfoundland,
due in each case to the headstrong act of a single politician.
A subsequent attempt to the same end in 1992, the Charlottetown
Accord, was defeated in two separate referenda held simultaneously
in Quebec and the other provinces. Almost 55% percent of the
rest of Canada voted against a compromise "distinct society"
status for Quebec that a similar percentage of its citizens voted
was inadequate and unacceptable.

In the 1984 election, Mr. Mulroney's Progressive
Conservatives carried 211 of 282 ridings, including 58 in Quebec.
With a smaller majority in 1988, the PC carried 63 ridings in
Quebec. But as the Meech Lake Accord came apart in 1990, Lucien
Bouchard split with the prime minister and led a group of Quebec
deputies out of the PC to form the Bloc
Québécois. In the west, many conservatives
opted for the new Reform party, leaving the PC to disintegrate
in the 1993 elections won by Mr. Chretién's Liberals.
As the regional party with the most seats, the Bloc became the
official opposition with the charismatic Mr. Bouchard as its
leader.

In Quebec, the separatist cause had suffered
a setback in 1985 when the PQ lost to the Parti
Libéral du Québec. But in 1994, promising to
hold a referendum on full sovereignty, the PQ returned to power,
and Canada accelerated toward constitutional crisis.

As the Monday, October 30, 1995, referendum
approached, polls showed the Oui and Non votes
in a dead heat. Emotions flared, especially in the old provinces
of Upper and Lower Canada, as the two founding peoples teetered
on the edge of divorce and the very existence of the nation hung
in the balance. On the Friday preceding the vote, Canadians of
all heritages and from every province flooded into Montreal's
Place du Canada and staged the largest political rally in Canadian
history to show support for the Non side in a last minute
effort to save their country. On a 93% turnout the following
Monday, a bare majority (50.58%) voted Non to separation
from Canada.

From the beginning of 1990 through 1995, the
years of acute constitutional crisis beginning with the unraveling
of the Meech Lake Accord and ending with the extremely close
Quebec referendum, Canada sold 395 tonnes of gold, with the largest
sales coming in 1991 (56 tonnes), 1992 (94 tonnes), 1993 (121
tonnes) and 1994 (67 tonnes). With a cost basis of $35/oz., the
net gains on these sales were substantial.

Canada's gold reserves are managed through
the Exchange
Fund Account. Its principal purpose is "to aid in the
control and protection of the external value of the monetary
unit of Canada." Analogous to the Exchange Equalisation
Account in Britain and the Exchange Stabilization Fund in the
United States, Canada's Exchange Fund operates with considerable
secrecy and is exempt from the Financial
Administration Act. However, its net income (or loss) each
year, including capital gains, is paid (or charged) to the Consolidated
Revenue Fund, which is the general pool of all income of the
federal government.

Absent explanations from those responsible
in both the Mulroney and Chrétien governments, the actual
reasons for 1990-1995 gold sales cannot be known with certainty.
However, the circumstances suggest two quite credible possibilites:
(1) raising funds in excess of those available through, or outside
the normal parliamentary or public scrutiny associated with,
other budgetary channels for the specific purpose of financing
activities intended to undermine support for separation; and
(2) in the event of separation, depriving Quebec of a claim on
significant gold reserves that might be used to help establish
an independent Quebec monetary system.

Some have suggested that the proceeds of the
gold sales were needed at the time to help offset large federal
budget deficits; others that Ottawa was under pressure to sell
"unproductive" assets. Neither suggestion is persuasive.
If deficit reduction alone were the explanation, the government's
admitted high level of sensitivity and near total lack of candor
are difficult to explain. Nor is selling gold like selling off
a crown corporation. There are many valid reasons for privatizing
state-owned enterprises quite apart from the capital gains that
may accrue to the government (or operating losses that may be
avoided).

Gold, like currencies, earns income when it
is loaned to others. Gold in vault storage does not earn income
precisely because its value does not depend on the promise of
another. Rather, gold in safe storage is the most secure form
of financial insurance available to both individuals and governments.
Like any form of insurance, the level of desirable coverage in
specific instances is a matter of judgment and reasonable people
can disagree. But when a nation sells its gold reserves down
to near zero, it is effectively canceling its financial insurance
policy, not merely reducing its coverage.

At the end of 1995, Canada's gold reserves
were down to a mere 106 tonnes, making the Bank of Canada an
all but impotent player in the scheme to suppress gold prices
organized by the central banks circa 1995 and challenged in the
Gold Price Fixing Case.
Ironically, a speech
delivered in London last February by the Governor of the Bank
of Italy points to the G-7 meeting in Toronto in February 1995
as the likely birthplace of this long-sustained and covert attack
on free market economics. See S. Corrigan, "Gold
is boomeranging on George, Greenspan, and the other central bankers,"
Capital Insight (August 27, 2003) and "It's
Dishonour, Sir," Capital Insight (August 3, 2003).

An exception exists to the adage that there
is no honor among thieves. Central bankers would rather steal
from their fellow countrymen than lose face within their elite
and powerful international fraternity. Thus, oblivious to or
unconcerned about the damage that low gold prices were inflicting
upon the Canadian gold mining industry, the Bank of Canada --
presumably at the direction of the Department of Finance -- continued
after 1995 to make and announce picayune gold sales on a regular
basis, and thereby to lend what support it could to the central
banks' scheme to suppress gold prices.

By the fall of 1999, Canada's gold reserves
had shrunk still further to not much over 60 tonnes. Not surprisingly,
therefore, neither the Bank of Canada nor the Department of Finance
were asked to participate in the Washington
Agreement on Gold announced on September 26, 1999, under
which the European Central Bank and 14 other European countries,
including France, Germany, Italy and the United Kingdom, agreed
to limit their total aggregate gold sales to 2000 tonnes over
the next five years. Nor did Canada volunteer to limit its future
gold sales in accordance with the spirit of the agreement as
did some other non-participants, including the United States
and Japan. Instead, spurning a last chance to make just a small
symbolic gesture of support for the Canadian gold mining industry,
the federal government plowed ahead with its gold sales so that
today less than 200,000 ounces remain.

With almost no gold reserves and being the
only G-7 nation completely disassociated from the Washington
Agreement, Canada is singularly ill-positioned either to negotiate
concerning, or to participate in, any reforms of the international
monetary system that elevate the importance of gold. The Bank
of Canada and the Department of Finance are apparently betting
that the signatories to the Washington Agreement did not really
mean what they said in the opening sentence of that document:
"Gold will remain an important element of global monetary
reserves."

Canadians are used to dealing with winter,
and many thrive on the sporting activities that snow and ice
permit. But in a Kondratieff winter fun and games give way to
a battle for sheer survival. In the economic cycle theory that
takes it name from the Russian economist who first developed
it, the function of winter is to flush accumulated and excessive
debt from the economy so that it can enter a new springtime of
genuine growth.

According to modern disciples of Kondratieff
theory, the economic outlook for the next few years is grim indeed.
See, e.g., interviews with Ian Gordon, editor of The
Long Wave Analyst, at Financial
Sense.com (July 27, 2002) and www.miningstocks.com
(June 1999 and July 12, 2002). Whether events will unfold substantially
as these analysts predict is unknowable, but they are indisputably
correct on one point: there are incomprehensible amounts of debt
that must be dealt with, especially in the American economy.

Richard Russell, a veteran market analyst
old enough to remember the last Kondratieff winter a/k/a the
Great Depression, thinks that the economic outlook for the United
States is now so frightening that most people are simply unwilling
to face it. As he puts it ("Escape
and Fantasy," Dow Theory Letters (July 29, 2003):

So what are people escaping from? I believe that consciously
or unconsciously, they're escaping from our future. And what
is our future? I'll say it once more -- our future is "INFLATE
OR DIE."

What - you don't understand what that means? Then I'll rephrase
it. Our future is "INFLATE OR REPUDIATE."

* * * * *

We have a $10 trillion economy. How on earth is a $10 trillion
economy going to service what's coming up in the way of $38 trillion
in debt [including unfunded liabilities]?

There are two choices. Repudiate a good chunk of this debt
or at least cut it back drastically. Or finance the debt via
the printing presses. Which one do you think the US government
is going to choose? Look, if we're running the printing presses
full speed now, and the BIG expenses haven't even hit yet, what
do you think our leaders are going to do when the "debt
hits the fan?" You guessed it, they're going to inflate
at a level that has never been seen before.

The famous free market economist Ludwig von
Mises made essentially the same point in Human
Action(Foundation for Economic Education, 4th ed., 1996),
p.
572:

The wavelike movement affecting the economic system, the recurrence
of periods of boom which are followed by periods of depression,
is the unavoidable outcome of the attempts, repeated again and
again, to lower the gross market rate of interest by means of
credit expansion. There is no means of avoiding the final collapse
of a boom brought about by credit expansion. The alternative
is only whether the crisis should come sooner as the result of
a voluntary abandonment of further credit expansion, or later
as a final and total catastrophe of the currency system involved.

As a result of free trade, the Canadian economy
is more leveraged than ever to that of the United States. How
well prepared is Canada for a severe global economic winter,
whether it arrives in a blizzard of inflation, a cold blast of
default and deflation, or both together? It used to be said that
if the United States caught an economic cold, Canada caught pneumonia.
What happens to the Canadian economy today if the United States
catches economic pneumonia? What happens to the Canadian dollar
if the U.S. dollar loses its status as the world's principal
reserve currency? Can Canada's shaky constitutional structure
weather the economic equivalent of SARS?

If the present global financial system built
around the U.S. dollar collapses, a prospect that can no longer
be dismissed as unthinkable and that some consider inevitable,
history and common sense suggest that whatever new system emerges,
it will give a greater and probably central role to gold. Then
Canadians will rue the years they watched passively as the Bank
of Canada unloaded their gold reserves for reasons that their
government still refuses to tell them. A nation that enters a
Kondratieff winter without gold is in the unenviable position
of a squirrel without acorns as the days turn short, the nights
long, and the weather cold.

Some argue that gold-producing nations have
less need of gold reserves than others because they can always
obtain the new production from their own mines should gold be
required at some future time to meet an emergency.In
Canada's case, at current rates of production and assuming all
newly mined gold were dedicated to the effort, it would take
over four years fully to replace the gold reserves sold since
1985. However, in the conditions most likely to give rise to
the need to replace those reserves, the more important issues
would relate to price and means of payment rather than supply.

In any financial crisis arising from a worldwide
loss of confidence in the U.S. dollar, gold prices could range
from much higher than the present quote to "no offer,"
particularly if other central banks have already loaned out as
much of their gold as some believe, including this author. See,
e.g., F. Veneroso, "An
Update On The Commodity Case For Gold," Gold Newsletter
(September 2003); and J. Turk, "Correcting
Disinformation," GoldMoney Alert (August 6, 2003).
What is more, the Canadian government's financial resources under
such circumstances would in all probability be under severe strain.
Then the issue would become whether to expropriate the mines
or their production using some sort of funny money.

In Canada as presently structured, where the
provinces exercise principal authority over the natural resources
within their borders, effective expropriation of the gold mines
or their production would raise grave constitutional problems
and almost certainly precipitate an immediate constitutional
crisis with Quebec, the second largest provincial gold producer
after Ontario.

To confront more effectively the strong United
States that emerged from the Civil War, the Dominion of Canada
was formed by the confederation of Ontario, Quebec, New Brunswick
and Nova Scotia under the British North America Act, effective
July 1, 1867, now incorporated in the Constitution Act, 1982.

Unlike the American constitution, which reserves
to the states or to the people powers not expressly delegated
to the federal government, the BNA Act confers on Canada's central
government powers not expressly delegated to the provinces. However,
in the United States early decisions by the Supreme Court under
Chief Justice John Marshall favored a strong central government.
Until 1949, final judicial authority with respect to the BNA
Act rested with the Judicial Committee of the Privy Council of
the House of Lords, which frequently sided with the provinces.
Thus today Canadian provinces exercise considerably more power
than American states.

Some attribute this paradoxical development
to the dead hand of Judah
P. Benjamin, defender of states' rights as U.S. senator from
Louisiana before the Civil War and attorney general, secretary
of war, and secretary of state for the Confederate States. After
the war, the man known as "the brains of the Confederacy"
fled to Britain, where he pursued an extraordinarily successful
legal career and argued several early cases under the BNA Act
before the Privy Council. However, the most important cases favorable
to the provinces came later, suggesting that Benjamin's role
in establishing Canada's tradition of strong provincial powers
was indirect at best, the residual effect of the Privy Council
and the London bar being introduced to federalism North American
style by a forceful advocate of states' rights. See C.O. Johnson,
"Did Judah P. Benjamin Plant the "States' Rights"
Doctrine in the Interpretation of the British North America Act?"
Canadian Bar Review (1967), pp. 454-477.

Confederation brought major change to Canada's
currency and banking systems, which were expressly assigned to
the jurisdiction of the Dominion government under the BNA Act.
See A
History of the Canadian Dollar (Bank of Canada, October 1999).
Dominion bank notes, redeemable in Halifax and St. John as well
as Montreal and Toronto, replaced the various provincial currency
issues, and the uniform currency of Canada became dollars fixed
at $4.8666 to the British sovereign and $10 to the U.S. gold
eagle.

However, the Bank of Canada did not open until
1935, more than twenty years after the establishment of the U.S.
Federal Reserve, making Canada the last of the present G-7 nations
to have a central bank. As explained in the recent report
on the Bank of Canada's handling of foreign gold during World
War II:

[I]t had taken the collapse of national credit in the Depression
and recognition that the gold standard no longer automatically
regulated trade to dislodge the long-standing opposition on the
part of Canada's commercial banks to the notion of state-sponsored
intervention in the credit and currency of the nation.

Under the Bretton Woods system the Canadian
dollar was linked to gold through the U.S. dollar. When that
system fell apart, both nations were left on unlimited paper
money. Since then and absent the discipline of gold, the locus
of political power has increasingly shifted toward Washington
and Ottawa, each of which can meet financial obligations denominated
in its own currency with the printing press, and away from the
respective states and provinces, which must still exercise levels
of fiscal discipline comparable to those of old.

But years of unlimited fiat money have taken
their toll. What now emerges is the possibility that the U.S.
dollar is a monetary HMS Titanic, with Captain Greenspan at the
helm, the Bank of Canada's David
Dodge and other central bankers sailing first class, and
the proletariat of Canada and the United States stuck in steerage.
The question for the provinces is whether they can use their
substantial powers under the BNA Act to devise for themselves
and their citizens a potential monetary lifeboat should it be
required.

The relevant grants of constitutional authority,
or "heads of power" in Canadian legal terminolgy, are
found in sections 91, 92 and 92A of the BNA Act.

Section 91 confers on the federal Parliament
"exclusive Legislative Authority" with respect to a
list of "Matters coming within the Classes of Subjects"
enumerated, including: "The Regulation of Trade and Commerce"
(item 2); "Currency and Coinage" (item 14); "Banking,
Incorporation of Banks, and the Issue of Paper
Money" (item 15, emphasis supplied); "Savings Banks"
(item 16); "Bills of Exchange and Promissory Notes"
(item 18); "Interest" (item 19); and "Legal Tender"
(item 20). Section 91 also confers on that body residual authority
"to make Laws for the Peace, Order, and good Government
of Canada, in relation to all Matters not coming within the Classes
of Subjects ... assigned exclusively to the Legislatures of the
Provinces."

Section 92 lists the "Matters coming
within the Classes of Subjects" on which the provincial
legislatures have exclusive jurisdiction, including: "The
Incorporation of Companies with Provincial Objects" (item
11); and "Property and Civil Rights in the Province"
(item 13). Section 92A adds to this list non-renewable natural
resources, forestry resources and electrical energy, including
the "development, conservation and management
of non-renewable natural resources ... in the province, including
laws in relation to the rate of primary production therefrom"
(item 1(b), emphasis supplied). "Primary production"
is defined inter alia as "product resulting from
processing or refining the resource, and is not a manufactured
product ..." (item 5, Sixth Schedule, item 1(a)(ii)).

Under the U.S. Constitution (art. I, s. 10,
cl. 1), the states cannot "make any Thing but gold and silver
Coin a Tender in Payment of Debts," thus authorizing by
implication state laws making gold or silver a legal tender.
The BNA Act does not contain any similar authorization for the
provinces, which thus appear foreclosed from making any laws
regarding what may pass as legal tender.

Since the demise of the Bretton Woods system,
the federal government of Canada like that of the United States
has assumed the power to issue unlimited fiat money. And in Canada,
just as in the United States, the highest court in the land has
never opined on the constitutional authority, if any, for the
exercise of this power, which finds no clear support in the BNA
Act and is in flat violation of the U.S. Constitution, explaining
why the U.S. Supreme Court has refused to address the matter.
See Walter W. Fischer v. City
of Dover, N.H., et al.,Petition
for Certiorari,Supreme Court of the United States, No.91-221.

In its historical
study referenced above, the Bank of Canada reports that the
legal tender notes -- "greenbacks" -- issued by the
American government during the Civil War "...fell from close
to parity against the Canadian dollar in early 1862 to less than
38 Canadian cents (or Can$1 = US$2.65) in mid-July 1864, [which]
represents the all-time peak for the Canadian dollar in terms
of its U.S. counterpart." By the end of the war, the greenback
had almost doubled from its low, and thereafter continued to
strengthen especially during 1866-1868 when many were retired.
With the resumption of specie payments in 1879 at the pre-war
rate, the Canadian and American dollars returned to parity, where
they remained until the start of World War I.

Reading "the Issue of Paper Money"
in head of power 91(15) against this history, it appears that
the fathers of confederation intended to grant the same power
to issue paper money to the new Dominion government as the American
government was then claiming. However, as of the date of confederation
in 1867, none of the Civil War legal tender cases had yet reached
the U.S. Supreme Court, leaving the constitutional validity of
the greenbacks in substantial doubt. Indeed, prior to the Civil
War no one would have seriously challenged Daniel Webster's view
(Speech on the Specie Circular, U.S. Senate, December
21, 1836):

Currency, in a large and perhaps just sense, includes not
only gold and silver and bank bills, but bills of exchange also.
It may include all that adjusts and exchanges and settles balances
in the operations of trade and business; but if we understand
by currency the legal money of the country, and that which constitutes
a legal tender for debts, and is the standard measure of value,
then undoubtedly nothing is included but gold and silver. Most
unquestionably there is no legal tender, and there can be no
legal tender in this country, under the authority of this government
or any other, but gold and silver, either the coinage of our
own mints or foreign coins at rates regulated by Congress. This
is a constitutional principle, perfectly plain and of the highest
importance. The States are expressly prohibited from making anything
but gold and silver a legal tender in payment of debts, and although
no such express prohibition is applied to Congress, yet, as Congress
has no power granted to it in this respect but to coin money
and to regulate the value of foreign coins, it clearly has no
power to substitute paper or anything else for coin as a legal
tender in payment of debts and in discharge of contracts. Congress
has exercised this power fully in both its branches; it has coined
money, and still coins it; it has regulated the value of foreign
coins, and still regulates their value. The legal tender, therefore,
the constitutional standard of value, is established and
cannot be overthrown. To overthrow it would shake the whole system.
[Emphasis supplied.]

The first of the Civil War legal tender cases
to reach the Supreme Court, Hepburn v. Griswold, 75 U.S.
(8 Wall.) 603 (1869), endorsed this view. But the following year
and after a change in the composition of the Court, the decision
in Hepburn was reversed and the constitutionality of the
greenbacks upheld in the Legal Tender Cases (Knox v. Lee and
Parker v. Davis), 79 U.S. (12 Wall.) 457 (1870). The notion
that their validity rested upon being a war measure was rejected
in Juilliard v. Greenman, 110 U.S. 421 (1884), which provoked
George Bancroft's A
Plea for the Constitution of the United States: Wounded in the
House of its Guardians (1884), a widely read polemic devoted
in large measure to rebutting the Court's assertion (110 U.S.
at 447):

The power, as incident to the power of borrowing money and
issuing bills or notes of the government for money borrowed,
of impressing upon those bills or notes the quality of being
a legal tender for the payment of private debts, was a power
universally understood to belong to sovereignty, in Europe and
America, at the time of the framing and adoption of the Constitution
of the United States.

None of these Civil War cases, however, authorized
the federal government to issue unlimited fiat money. On the
contrary, in the Legal Tender Cases, 79 U.S. (12 Wall.)
at 553, the Court said:

It is said there can be no uniform standard of weights without
weight, or of measure without length or space, and we are asked
how anything can be made a uniform standard of value which has
itself no value? This is a question foreign to the subject before
us. The legal tender acts do not attempt to make paper
a standard of value. We do not rest their validity
upon the assertion that their emission is coinage, or
any regulation of the value of money; nor do we assert that Congress
may make anything which has no value money. What we do assert
is, the Congress has power to enact that the government's promises
to pay money shall be, for the time being, equivalent in value
to the representative of value determined by the coinage acts,
or multiples thereof. ... It is, then, a mistake to regard
the legal tender acts as either fixing a standard of value or
regulating money values, or making that money which has no intrinsic
value. [Emphasis supplied.]

The concurring opinion of Justice Bradley
emphasized the same point (id. at 560):

This power [to emit legal tender notes] is entirely distinct
from that of coining money and regulating the value thereof.
... It is not an attempt to coin money out of a valueless
material, like the coinage of leather or ivory or kowrie shells.
It is a pledge of the national credit. It is a promise
by the government to pay dollars; it is not an attempt to make
dollars. The standard of value is not changed. [Emphasis
supplied.]

As a result of the Civil War legal tender
acts, two different American dollars came into general circulation:
paper and specie. They were described by the Supreme Court in
Trebilcock v. Wilson, 79 U.S. (Wall.) 687, 694-695 (1871):

The note of the plaintiff is made payable, as already stated,
in specie. ... But here the terms, in specie,
are merely descriptive of the kind of dollars in which the note
is payable, there being two different kinds in circulation, recognized
by law. They mean that the designated number of dollars in the
note shall be paid in so many gold or silver dollars of the coinage
of the United States. They have acquired this meaning by general
usage among traders, merchants, and bankers, and are the opposite
of the terms, in currency, which are used when
it is desired to make a note payable in paper money. These latter
terms, in currency, mean that the designated number
of dollars is payable in an equal number of notes which are current
in the community as dollars. [Emphasis in original; citations
omitted.]

As this review of the American legal tender
cases decided shortly after confederation shows, the power to
issue paper money representing -- however imperfectly -- a metallic
standard of value was regarded very differently from the power
to issue unlimited fiat money. Under head of power 91(15) in
the BNA Act, the new Dominion government was granted an express
power covering "the Issue of Paper Money," but there
is nothing in the BNA Act to suggest that this grant included
the power to issue unlimited fiat money with no reference whatsoever
to a metallic standard of value. Notes of that nature would have
been far worse than American greenbacks; they would have been
Canadian "snowflakes" destined to melt over time with
no chance of repayment in money having any recognized or identifiable
standard of value.

Nor can the power to issue unlimited fiat
money be found in the words "Currency and Coinage"
as used in head of power 91(14). The Court in the Legal Tender
Cases expressly disclaimed any assertion that the "emission
[of legal tender notes] is coinage." Giving "currency"
the same meaning as the Court in Trebilcock, the power
refers only to paper money. Thus the federal "Currency and
Coinage" head of power does not support an implied federal
power to require the exclusive use of an unlimited paper currency
or to prohibit or unreasonably interfere with the use of gold
or silver, especially in circumstances where the metals are held
as protection against anticipated depreciation in the value of
paper money or circulate in voluntary private transactions solely
on the basis of weight.

Canada's existing Currency
Act does not mandate a different result. For while it requires
all "public accounts" to be maintained in Canadian
dollars (s. 12), it permits private contracts to be made in Canadian
dollars or in "the currency of a country other than Canada"
or "a unit of account that is defined in terms of the currencies
of two or more countries" (s. 13). Since all currencies
are defined today by the value at which they exchange in world
markets, and since gold and silver in various specified weights
exchange against all of them in markets around the globe, units
of gold or silver -- whether grams, ounces, other locally recognized
weights, or fractions thereof -- all fit within this authority.

Section 92A of the BNA Act grants broad and
exclusive authority to the provinces over natural resources within
their territories. Head of power 92(13) covers "Property
and Civil Rights," which in its literal and historic sense
is "the entire body of private law which governs the relationships
between subject and subject," but this broad power is reduced
under the BNA Act by withdrawing certain enumerated matters and
placing them in the exclusive jurisdiction of the federal government.
See P.W. Hogg, Constitutional Law of Canada (4th ed. (looseleaf),
vol. 1, s. 21.2).

However, in the area of financial institutions
and banking, the constitutional dividing line is not fixed. There
federal power is deemed exclusive only to the extent that it
has been exercised. Thus federal power over banking has not prevented
the provinces from chartering and regulating other financial
institutions (e.g., trust companies, credit unions, caisses
populaires) that perform essentially the same or similar
functions as the federally chartered banks.

The provinces may also enact laws of general
applicability to all financial institutions as long as they do
not unduly burden or discriminate against the chartered banks
or impose requirements on them that are inconsistent with federal
laws. As Canada's financial services industry has evolved, provincial
regulation of the insurance industry is widespread and the securities
industry is regulated exclusively at the provincial level. See
id., s. 24; esp. discussion of Canadian Pioneer Management
v. Labor Relations Board of Saskatchewan (1980) 1 S.C.R.
433, and Reference Re Alberta Statutes (1938) S.C.R. 100
(invalidating a Depression era comprehensive "social credit"
scheme).

In summary, the Canadian constitution does
not confer on the federal government any clear authority to issue
unlimited fiat money. Neither the constitution nor the Currency
Act erects any clear or obvious bar to provincial legislation
designed to support and encourage the use of gold within the
province, whether in connection with savings, retirement or insurance
plans or in voluntary exchange for goods or services. What is
more, there is express constitutional support for provincial
legislation to encourage the use of gold if that legislation
is tailored to promote "development, conservation and management"
of gold deposits within the province and does not unduly interfere
with any authorized exercise of federal power.

Much of the New Deal legislation proposed
in Canada during the 1930's was held invalid by the Privy Council,
which declined to give an expansionary interpretation to the
federal government's residual authority under the "Peace,
Order, and good Government" clause ("p.o.g.g."
clause). As a result, Ottawa's regulatory authority over trade
and commerce at the national level is significantly more circumscribed
than Washington's, and the provinces necessarily play a much
larger role in regulating the economic and business life of the
nation than do the American states. See Hogg, supra, s.
17.4(a).

However, none of the New Deal litigation in
Canada involved currency issues, and there is no Canadian analogue
to the Gold Clause Cases, 294 U.S. 240 (1935). Canada
made no effort to confiscate gold in the possession of its citizens
or to prohibit private ownership of gold. Although the federal
government and at least two provinces passed statutes to alleviate
the burden of gold clauses in private and public contracts, none
of this legislation appears to have produced reported decisions.
Interestingly, the gold clause statutes remain on the books in
Nova Scotia (Gold
Clauses Act, R.S., c. 186) and Manitoba (Gold
Clauses Act, C.C.S.M. c. G60), a reminder that the provinces
have in the past claimed broad powers with respect to regulating
the monetary use of gold.

Generally speaking, the p.o.g.g. clause authorizes
the federal government to act on: (1) matters falling in gaps
not covered by the express distribution of powers between the
federal Parliament and the provincial legislatures; (2) matters
of national concern provided that in each case the subject is
sufficiently distinct to qualify as a discrete "matter"
separate and apart from those delegated to provincial jurisdiction;
and (3) matters presenting national emergencies such as war or
insurrection, but then only on a temporary basis. See Hogg, supra,
ss. 17.2 (gap), 17.3 (national concern), and 17.4 (emergency).
In its historical
study of the Canadian dollar, the Bank of Canada notes that
foreign exchange controls were imposed under the War Measures
Act in World War II but not in World War I.

In an effort to control inflation, the federal
government in 1975 passed temporary wage and price controls to
expire in 1978 unless sooner terminated or extended. In Reference
Re Anti-Inflation Act (1976), 2 S.C.R. 373, the Supreme Court
of Canada declined to view this legislation as dealing with a
matter of national concern having the requisite distinctness,
but upheld the act because, as the Chief Justice explained (at
425):

In my opinion, this Court would be unjustified in concluding,
on the submissions in this case and on all the material put before
it, that the Parliament of Canada did not have a rational basis
for regarding the Anti-Inflation Act as a measure which,
in its judgment, was temporarily necessary to meet a situation
of economic crisis imperilling the well-being of the people of
Canada as a whole and requiring Parliament's stern intervention
in the interests of the country as a whole.

Summarizing the federal government's authority
under the p.o.g.g. clause as currently construed in Canadian
jurisprudence, Dean Hogg writes (supra, s. 17.5):

First, it gives to the federal Parliament permanent
jurisdiction over "distinct subject matters matters which
do not fall within any of the enumerated heads of s. 92 and which,
by nature, are of national concern", for example, aeronautics
and the national capital region. Secondly, the p.o.g.g. power
gives to the federal parliament temporary jurisdiction
over all subject matters needed to deal with an emergency. On
this dual function theory, it is not helpful to regard an emergency
as being simply an example of a matter of national concern. As
Beetz J. said, "in practice the emergency doctrine operates
as a partial and temporary alteration of the distribution of
power between Parliament and the provincial Legislatures."
[Emphasis in original; citations omitted.]

In any future global monetary crisis, there
is little question that the government of Canada has constitutional
authority without resorting to the p.o.g.g. clause to modify,
change or reform the unlimited fiat money system that it has
created, including the reestablishment of some form of linkage
between paper money and gold. In the latter event, however, should
the federal government try to use the p.o.g.g. clause effectively
to commandeer the gold resources under provincial jurisdiction,
it could do so only temporarily, hardly a sound basis for permanent
monetary reform.

What is more, the exercise of such emergency
authority would have to take account of likely practical constraints,
especially if there were significant opposition from the gold-producing
provinces. The federal government's actions with respect to gold
over the recent past have scarcely endeared it to the gold mining
community, which might at long last decide actively to resist
further depredations from Ottawa.

Strong opposition to any federal gold grab
in Quebec would present an even dicier situation. At a minimum,
it would hand the PQ a cause célèbre on
which to mount a new referendum campaign. If events started to
slip out of control into civil disobedience, a second peacetime
proclamation of the the War Measures Act in Quebec could provide
the spark for outright rebellion. Used in both world wars, this
act has been invoked only once peacetime: to deal with an "apprehended
insurrection" in October 1970 following the kidnapping of
a British diplomat, later released, and a Quebec cabinet minister,
later murdered, by the Front de Libération du Québec,
a violent separatist organization.

Widely regarded in Quebec (and elsewhere)
as an excessive suspension of civil liberties not justified by
the activities of a relatively minor splinter group, this use
of the War Measures Act produced some litigation in the lower
courts but no definitive consideration of its constitutionality.
However, the Quebec government later compensated many who were
arrested but not subsequently charged or who claimed to have
suffered other police mistreatment under this episode of martial
law.

While international policy makers have done
virtually nothing to reform a global paper currency system that
appears headed toward complete breakdown, technology and the
Internet have enabled the rebirth of real global money -- gold
-- in a far more efficient, practical and safe form than possible
in earlier times.

A leading innovator in this regard is GoldMoney.com, which has
created a digital gold currency that circulates electronically
over the Internet with relatively low transaction costs among
the system's users on a 24/7 basis while at the same time representing
physical gold in equal amount held in allocated storage. GoldMoney
offers a safe and secure way to make immediate and non-repudiable
payments in grams of gold (31.1034 grams equal one ounce), making
it the functional equivalent of payment in gold coin in centuries
past but avoiding the minting costs and other practical inconveniences
associated with specie payments.

Both "GoldMoney" and "goldgram"
are registered trademarks, and a GoldMoney "goldgram"
is unique in that it circulates electronically through GoldMoney's
patented system. However, the concept of using grams of gold
(or any other specific weight of gold) as money is neither patentable
nor foreclosed to further development by others in non-infringing
ways, e.g., minting coins or wafers denominated in grams,
operating certificate or other gold accumulation plans in grams,
offering exchange traded funds with each share representing one
gram, or pricing goods and services in grams along with, or even
in substitution for, national currencies. Henceforth, "gold
gram" (two words) is intended in a generic sense whereas
"goldgram" (one word) refers to the unit of account
at GoldMoney.

A gold gram is simply a weight of gold unencumbered
by a prescribed relationship to any national currency. Its value
comes not from national legal tender laws but from its usefulness
as a commodity. GoldMoney's goldgrams are, and any gold gram
theoretically is, divisible into 1000 mils for precision in individual
transactions. At a gold price of US$311/ounce, one gold gram
equates to $10 and one mil to one cent, making them as (or more)
convenient for pricing goods and services as dollars and cents
or other national currency units.

Certain features of GoldMoney's system deserve
further mention because they illustrate not only how technology
and the Internet have made transactions using gold as the medium
of exchange practical, convenient and economic, but also how
they have provided solutions to the major risks and problems
associated with fractional reserve banking under the gold standard.

GoldMoney's fees
and transaction costs are relatively low and highly competitive
with other payments systems. Goldgrams can be purchased through
Kitco,
where the per ounce equivalent prices for goldgrams can be compared
to those for other bullion products. Recently, Kitco has offered
goldgrams at less than a 2% premium to COMEX gold in New York
and at a lower premium than Krugerrands, the least expensive
of the one ounce bullion coins. Redemptions back into major national
currencies are typically made at less than a 2% discount to spot,
keeping the full cost of a round turn to under 4%.

Transactions in goldgrams currently incur
a processing charge to the user's account in an amount equal
to 1% of the payment requested, but not less than 10 mils nor
more than 100 mils per transaction, making GoldMoney highly competitive
with bank wire charges of US$15 to $30 or credit/debit card fees
to merchants of 1% to 4%. Cross-border transactions conducted
in goldgrams eliminate entirely spreads and commissions on foreign
exchange. Electronic transfer eliminates the costs of shipping
and handling physical gold.

Unlike a fractional reserve banking system
in which the depositors' gold is effectively on loan to the bank
and thus subject to credit risk, goldgrams represent stored physical
gold in equal amount held under bailment for the account holder,
thereby eliminating credit risk and most forms of settlement
risk. While the gold in individual user accounts represents unallocated,
undivided proportional interests in the pool of gold containing
all user accounts, the total pool is held in allocated storage
in the form of 400 ounce bars meeting London good delivery standards
and subject to various safeguards, including vault insurance
and independent third party verification of user accounts.

Except for large commercial accounts, GoldMoney
currently charges a vault or storage fee of 100 mils per month
regardless of account size. At this rate, annual vault charges
on one kilogram (1000 goldgrams or 32.15 ounces) would amount
to 0.12%, and on 100 ounces to less than .04%. According to its
report as of June 30, 2003, GoldMoney had users in over 100 countries.
However, at present its goldgrams cannot be used to make payments
other than between or among GoldMoney's account holders, making
the creation of some sort of debit card that would allow payments
from user accounts to non-users in various national currencies
a desirable next step.

At least one Canadian gold mining company,
IAMGOLD, has announced a gold
money policy that encompasses both holding the bulk of its
discretionary corporate funds in allocated gold and paying dividends
at the shareholder's choice in Canadian dollars or gold, possibly
using GoldMoney to effect the latter. Thus even in ordinary business
transactions, Canada's ersatz hard money coins -- the looney
and the tooney -- could soon face potential competition from
real money of gold.

According to one wag, the basic problem in
the Canadian energy industry is geographic: all the oil is in
the west but all the dipsticks are in Ottawa. A similar problem
affects its gold mining industry: all the gold is in the great
Pre-Cambrian shield that hosts Canada's mineral wealth but the
most powerful gold-diggers are in the nation's capital with the
dipsticks.

The Canadian government has dropped its shield
of monetary gold for the paper sword of U.S. dollars. The provinces
with gold deposits can follow suit by falling on the golden swords
within their reach. Or they can draw them, using the resources
and constitutional tools which they possess to position their
citizens to survive and prosper in a post-dollar world where
permanent, natural money of gold plays a much larger role than
it has in the recent past.

Since the Canadian dollar is no longer defined
with reference to a weight of gold, and since gold bullion coins
from foreign jurisdictions are allowed to trade and circulate
freely in Canada alongside its own Maple Leaf gold coins, there
does not appear any sound practical, legal or constitutional
objection to the provinces authorizing coins or wafers minted
from gold mined within their borders and denominated solely in
gold grams or some other convenient weight of gold such as ounces.
Because grams appear more suitable than ounces for smaller transactions
as well as equally suitable for larger ones, the gram unit is
employed in the remainder of this essay as a shorthand expression
for any convenient weight of gold and without intent to exclude
ounces in uses where they might be preferred.

Of course, a province cannot charter a "bank"
to issue gold grams. Nor can a province make gold grams legal
tender or assign them a value expressed in Canadian dollars,
as is the practice under the federally authorized Maple Leaf
coin program. See the Royal
Canadian Mint Act. What is more, any provincial gold coin
or wafer program would have to comply with the Precious
Metals Marketing Act, which is intended to protect buyers
of these items and in certain circumstances authorizes the use
of a national quality mark consisting of a maple leaf surrounded
by the letter C.

Minting physical gold grams and encouraging
their use within the province would likely stimulate greater
interest in and demand for paper gold grams. Certificates denominated
in gold grams might be offered by provincial institutions under
regulations designed to assure sufficient backing, preferably
by gold mined in the province. Another possibility would be exchange-traded
funds denominated in gold grams. In all probability, growing
use of physical and paper gold grams would interact in mutually
supportive ways with the use of electronic gold grams like those
offered by GoldMoney.com. To accelerate growth in this area,
provincial merchants could be motivated with or without formal
legislative action to participate in payments systems utilizing
electronic gold grams.

Targeted support for provincial gold mining
could involve programs other than flow-through shares, which
often waste a lot of money on tax breaks for wealthy investors
without producing much in the way of new mines, permanent jobs,
or future tax revenues.

Coin or wafer programs could include financial
incentives to encourage delivery of gold mined in the province
to its designated mint. During periods of severely (or artificially)
depressed gold prices, effective price supports could be implemented
-- as they were by the federal government during the era of the
London gold pool -- to discourage high-grading, which often makes
physical access to the lower grades of ore left behind much more
difficult if not impossible, and in any event reduces the average
grade of what remains to the point where much higher gold prices
are needed to justify mining it.

Indeed, in the event of a legal challenge
by the federal government to provincial gold gram programs, the
provinces might well consider the possibility of a counterclaim
for reparations on account of injury to provincial ore bodies
caused by the federal government in recent years. Even assuming
that all the Bank of Canada's gold sales prior to the 1995 Quebec
referendum were carried out for sound and justifiable reasons,
the subsequent sales of Canada's last hundred tonnes -- frequently
at prices under $300/oz. in support of the central banks' scheme
to suppress gold prices -- was and is indefensible.

As officials in a major gold-producing nation
with great mining expertise, those responsible for the sales
must have known that as a direct consequence of the unanticipated
and artificially low gold prices at which they were made, high-grading
was inflicting substantial and probably irreparable damage on
the ore bodies of many of Canada's working gold mines. What is
more, these sales were utterly incompatible with prudent management
of the nation's official reserves. Having already sold off most
of its gold, Canada should have seized the opportunity that low
gold prices presented to bring its gold reserves back to levels
more consistent with those in other G-7 countries.

To the extent that provincial gold gram programs
involve subsidies, they should be tailored to meet the requirements
of NAFTA, which permits non-discriminatory measures with legitimate
objectives particularly when related to environmental concerns
or the management of natural resources. Because gold grams derive
their value solely from their weight and do not link to any national
currency except through the gold and foreign exchange markets,
gold gram programs even at a national level would not run afoul
of the Second Amendment to the Articles of Agreement of the International
Monetary Fund, which prohibits member countries from linking
their currencies to gold.

Today low risk short-term instruments offer
negligible yield. Higher yields are available at longer maturities
but at much higher risk, especially given existing inflationary
pressures. Under these circumstances, gold is primed for rapid
appreciation against all paper currencies. Provincial gold gram
programs have the potential both to accelerate the rise in gold
prices and to bring the benefits of the upturn to a broad segment
of the provincial population. See J. Embry, "15
Fundamental Reasons to Own Gold," GoldMoney Alert
(September 26, 2003).

Transformed by The
Quiet Revolution (La
Révolution tranquille), Montreal celebrated Canada's
centennial year with Expo 67 and an extraordinary visit from
Charles de Gaulle, leader of the Free French during World War
II, founder of the Fifth Republic, and at the time President
of France. Circumventing efforts by the federal government to
make him little more than a tourist and finessing diplomatic
protocol that would have required him to arrive in Ottawa, General
de Gaulle reached Quebec aboard the French naval cruiser Colbert
on June 23, 1967, after a brief stopover in St. Pierre et Miquelon,
France's last remaining territory in North America. Greeted warmly
by over a million enthusiastic Quebecers as he followed the Chemin
du Roy (Route 138) in an open car to Montreal, the general
arrived in the metropole on June 24.

That evening, from the balcony of Montreal's
town hall, he delivered an address
(online TV
clip from Radio Canada; also film
by Jean-Claude Labrecque) to an audience of some 15,000, including
a few placard waving members of the Rassemblement pour l'Independence
nationale, an early forerunner of the PQ. Comparing the mood
of the day to the liberation of Paris in 1944, he praised the
recent accomplishments of the province, especially in Montreal,
and promised further French support for transatlantic cooperation
with Quebec. Then, professing unforgettable memories of an extraordinary
day and affirming that "all of France knows, sees, and understands
what happens here," he closed with a salute heard around
the world: "Vive le Québec libre!"

The president of France had uttered the slogan
of the RIN. Great waves of applause rose from the crowd, followed
almost at once by icy anger from Ottawa that cut short the general's
trip and plunged Canada's relations with France into a deep freeze
that would last a decade.

Almost as aghast as Canadian officials were
some of General de Gaulle's own colleagues, who attributed the
incident to his advancing years combined with a penchant for
making decisions without consultation. See J. Portes, "Il y
a trente et un ans... Vive le Québec libre!"
(1998 article par l'auteur de Le Canada et le Québec
au XXe siècle (A. Colin, 1994)). However, met at Orly
by virtually his entire government on his return from Canada,
the general explained simply: "Il y avait le destin d'un
peuple. ... Je leur ai fait gagner dix ans." ["There
was the destiny of a people. ... I advanced them ten years."]
See J. Chartier, "De
Gaulle s'était adressé aux Québécois
dès 1940," Le Devoir (23 juillet 1997).

It was not an idle boast. Before the year
was out, René Lévesque had left the PLQ to form
the Mouvement pour la Souveraineté-Association,
which in 1968 merged with the RIN and another sovereigntist group
to create the PQ. In 1976, less than a decade after General de
Gaulle's visit, the PQ came to power in a surprise victory that
shook Canada to its foundations and led in 1980 to the first
Quebec referendum on sovereignty.

No less important were the effects in France,
where despite cultural exchanges that had begun during the Quiet
Revolution, most people in fact knew little and cared less about
what went on in Quebec. Many in France faulted their president
for unwarranted interference in the internal affairs of a friendly
nation. Nevertheless, further initiatives were taken to strengthen
the ties between France and Quebec, and support for its aspirations
toward independence took permanent root in official French policy.
Had the Oui vote prevailed in 1995, France apparently
stood ready to grant some form of immediate recognition to Quebec
notwithstanding that by the terms of the referendum question
itself full sovereignty had to await the outcome of talks with
the federal government. See F.
Bastien, Relations particulières: La France face
au Québec aprés de Gaulle (Le Boréal,
1999), esp. pp. 331-333, 358 (review
by C. Rioux, Le Devoir, 21 novembre 1999).

In retrospect, General de Gaulle's 1967 visit
put an exclamation point at the end of the Quiet Revolution and
marked the beginning of a new chapter in Quebec history, which
for over thirty-five years now has been characterized not only
by the ebb and flow of agitation for sovereignty but also by
a novel and complex Paris-Ottawa-Quebec diplomatic dance that
often treats the Canadian province as if it were a separate international
entity on the world stage. See A. Peyrefitte, De Gaulle et
le Québec (Stanké, 2000); and J. Chartier,
"De
Gaulle n'a pas improvisé," Le Devoir (22
juillet 1997).

Defeated by the PLQ under former federal conservative
leader Jean Charest in elections last spring, the PQ failed over
almost a decade of consecutive mandates to achieve its goal of
Quebec sovereignty. However, in the process it managed to demonstrate,
as the Bélanger-Campeau
report in 1991 had concluded, that sovereignty remains a quite
viable option for Quebec given sufficient popular support. Events
have shown too, as that report also suggested, that two major
economic issues -- currency and free trade -- must be satisfactorily
addressed before a significant majority of Quebecers will vote
to separate from Canada. From the outset, Quebec strongly supported
the free trade initiatives of the Mulroney government, and few
Quebecers want to risk losing the benefits of NAFTA.

On the currency question, the report identified
three basic choices: (1) use of the Canadian dollar pending eventual
transition to a new Quebec currency; (2) use of the U.S. dollar;
or (3) adoption of some new North American currency created to
facilitate trade under NAFTA. During the 1995 referendum campaign,
the PQ's program called for retaining the Canadian dollar. At
the same time, there were at least hints that in the event of
victory, the PQ's intention was quickly to move to use of the
U.S. dollar. In either case, Quebec would have surrendered all
control or influence over its own currency, and instead would
have had to accept the disadvantages of relying on a currency
managed with reference to economic conditions in the rest of
Canada or in the United States.

The international monetary scene has changed
significantly since the 1995 referendum. First, as discussed
at the outset, the deficiencies of floating exchange rates revolving
around the U.S. dollar have become much more obvious. Second,
also as previously discussed but not nearly as widely recognized,
technology and the Internet have given rise to exciting new possibilities
for the monetary use of gold. Third, not yet discussed and of
special relevance to Quebec given its ties to France, the national
currencies of most of western Europe have been replaced by the
euro. The euro area economy is roughly the same size as the American,
and the euro area countries claim total official gold reserves
half again as large as those of the United States.

Currently the euro area consists of 12 of
the 15 member nations of the European Union. Eleven, including
France and Germany but excluding the United Kingdom, agreed to
participate in the original launch of the new currency on January
1, 1999, as a transactional and accounting medium. Greece joined
in January 2001. For the first three years, the euro remained
essentially a digital currency with no physical expression. The
national currencies of the 12 euro area countries continued to
circulate, but at exchange rates irrevocably fixed to the euro
and thus to each other. Notes and coins denominated in euros
were not introduced until January 1, 2002, at which time the
national currencies of the participating countries were withdrawn.
Thus today the 12 euro area members have a single currency managed
on behalf of all by a single central bank, the European Central
Bank, in which each has representation.

Nobel laureate Robert A. Mundell is widely
regarded as the driving intellectual force behind the euro, which
many believe could someday replace the dollar as the world's
key currency. The euro traces its roots to his 1961 paper, written
while the Canadian native was chief economist for the IMF, outlining
a theory of optimal currency areas. Professor Mundell has on
occasion observed that an optimum currency area is not very different
from a group of free market countries on a gold standard with
fixed exchange rates among them. He has also recognized the political
reality that the United States is unlikely to support any reform
of the international monetary system as long as the existing
chaotic one is tilted so much to its advantage. See, e.g.,
R.A. Mundell, "The
International Monetary System in the 21st Century: Could Gold
Make a Comeback?" (1997 lecture, St. Vincent College,
Latrobe, Pennsylvania) (containing a fascinating discussion gold's
historic role as money while incidentally mentioning Canada,
Belgium and the Netherlands as having "sold gold to help
finance large budget deficits").

As a province within Canada, Quebec stands
to benefit from promoting the use of gold grams in much the same
ways as the other gold-producing provinces. However, as a province
contemplating the negotiation of either a new constitutional
accord or full sovereignty, Quebec could reap additional important
advantages from an established and successful provincial gold
gram program, which might serve as: (1) the basis for an independent
monetary system in the event of complete separation from Canada;
(2) an effective lever to move the federal government and the
other provinces towards a new constitutional accord remedying
the unacceptable provisions of the Constitution Act, 1982; or
(3) a useful tool in negotiating potential future monetary or
trade arrangements with France or the euro area.

With respect to the latter, there is little
point in speculating here on the precise nature of what arrangements
might make sense at some future date. However, two general points
are in order. First, if economic conditions change in a way that
reduces Quebec's trade with the United States, not only does
NAFTA become less of an issue but increased trade with the EU
becomes more imperative.

Second, on the monetary front, France is widely
regarded as the G-7 country most friendly to gold. Also, France
has long helped to manage and support the CFA (Communauté
Financière Africaine) franc, the common currency of nearly
all its former African colonies. See Monetary
Independence: Reinventing the Wheel of Misfortune. Formerly
linked to the French franc, the CFA franc is now tied to the
euro. See J. Irving, "For
better or for worse: the euro and the CFA franc," Africa
Recovery (United Nations, April 1999). As the following chart
shows, except for a 50% devaluation in January 1994, the CFA
franc has performed quite respectably against the Canadian dollar,
and even with the devaluation has outpaced the other NAFTA currency,
the Mexican peso.

Finally, Quebec possesses other unique attributes
that make it a particularly fertile area for introducing a gold
gram program. Like the French, Quebecers have an instinctive
affinity for gold. In Quebec, unlike the United States and most
of the rest of Canada, brief business news segments in regular
TV news programs almost always include the day's gold price along
with other key financial market data.

With respect to electronic gold grams, not
only is Internet use in the province generally comparable to
that in other parts of North America, but also Quebec, a code
rather than common law jurisdiction, adopted pioneering legislation
in 2001 to "establish a legal framework for the use of information
technology." See J.D. Gregory, "Canadian Electronic
Commerce Legislation," 17 Banking and Finance Law Review
277 (2002), esp. pp. 316-318. Along the same lines, ATM machines
arrived early in Quebec, which is regularly used as a test market
for new retailing concepts. What succeeds in Quebec stands a
good chance of doing likewise in the rest of North America, whereas
flops can usually be quietly buried without news of them traveling
outside the province due to the language difference.

In March 1776, less than year after the battles
at Lexington and Concord, Benjamin Franklin arrived in Montreal
with instructions from the Continental Congress to try to convince
Quebec to join the Revolution. Troops under the command of a
still loyal Benedict Arnold were in possession of the city, but
without money or supplies and forced to live off the land, they
had alienated much of the local population, who in any event
had little reason to flock to the American cause. By then, Montreal
was already a prosperous trading center due in large part to
the fur trade, and the Quebec Act had further assuaged much of
the enmity toward Britain that the Americans had expected to
find.

Realizing almost at once that the American
position was untenable, Franklin advised retreat but returned
with a significant bagatelle: the marten's fur cap that he wore
with telling effect as America's principal representative to
France in the critical years ahead (pictured in engraving
by Augustin de Saint Aubin). See W. Isaacson, Benjamin Franklin,
An American Life (Simon & Schuster, 2003), pp. 305-307.
Indeed, the rigors of the winter trip nearly killed the 70-year
old Franklin, an event that in all probability would have changed
the face of modern North America even more than had Quebec cast
its lot with the American colonies.

Although possessing what was then the world's
most powerful military machine, King George III ultimately failed
to lay off on the American colonies a share of the rising costs
for the British Empire. The circumstances may be vastly different
today, but George III of America is attempting a similar feat
by trying to finance the world's newest empire on the back of
an unlimited paper dollar that is a pale shadow of the Spanish
milled dollar from which both it and its Canadian counterpart
sprang.

This abuse of what General de Gaulle condemned
as "an exorbitant privilege" may be more subtle and
more effective than simple military conquest, but the resulting
empire is no more likely to endure. No one can predict with certainty
exactly how or when the dollar will fall or be pushed from the
summit of the paper money mountain. But when that day arrives,
much of what is now thought permanent will be in play, including
the political map of North America. Then huge pressures will
come to bear on the Canadian confederation, on its currency,
on its trade and economy, and on its peoples. Indeed, to prepare
Mexico, the world's largest silver producer, for just such an
event, a leading Mexican business executive has proposed that
a parallel silver currency denominated in ounces circulate alongside
the peso. See articles collected at La
Plata.

What was once called the "Golden Square
Mile" today forms the heart of Montreal's downtown business
district. In 1900, its 25,000 residents controlled 70% of Canada's
wealth. See Insight Guide, Montreal & Quebec City,
p. 157. While most were anglophones, they were also bilingual,
participating in the French culture of the city much as the early
fur lords had done a century before.

But as waves of arriving immigrants began
to change the face of the city, the English aristocracy moved
out to Westmount, where as the years passed growing numbers failed
to learn French and increasingly isolated themselves from the
francophone population. Heavy opposition by Quebecers to conscription
in both world wars further deepened the divide between the founding
peoples. Unwilling to serve with Canadian forces to defend the
British Empire, the bilingual René Lévesque joined
the U.S. Army in World War II.

During the 1970's and 1980's, separatist agitation
and aggressive new language laws took a heavy toll on Montreal's
economy. Over 100 companies, including many of the largest and
best-known in the country, moved their headquarters down the
Loyalist Parkway (Highway 401) to Toronto, which replaced Montreal
as Canada's largest city and principal business center. But the
Quiet Revolution had prepared Quebecers for the challenge of
rebuilding the metropole's economy, and before long companies
like Bombardier, SNC Lavalin and Quebecor rose to rival the stature
of many that had left.

What is more, even as large numbers of lestêtes carré ("square-heads" --
the mildly derogatory Québécois expression for
unilingual anglos) departed, a younger generation of bilingual
anglophones began to emerge and to challenge twentieth century
stereotypes with nineteenth century conduct. As a group, they
may be hard to categorize, but neither federalists nor separatists
can afford to take them for granted based on past preconceptions.
See, e.g., P.
Scowen, Trahison tranquille (Les Intouchables, 1998)
(review
by M. David, Le Soleil, 17 mars 1998). Similarly, the
francophone population of Montreal is generally bilingual, testimony
not just to the power of television and the Internet but also
to the fact that English has become the lingua franca of trade
and commerce, Montreal's raison d'être.

Canada's future as a single nation is not
assured even if economic apocalypse is avoided. Far less turbulent
economic change could easily exacerbate the serious constitutional
discord built into the confederation in 1982. The nation's birth
certificate may say Charlottetown, July 1, 1867, but in truth
modern Canada is descended from the shotgun marriage of its founding
peoples in Montreal a century earlier. Whatever the economic
future, that great metropole is in all likelihood the place where
the final decisive struggle for Canada's political future will
take place.

Then the old golden square mile will contain
a rich vein of votes, and God willing, a free election will resolve
the complex issues that arms on the Plains of Abraham never did
nor could, and that patriation of the Canadian constitution without
Quebec's assent unavoidably reopened. For better or for worse,
the tides of history have thrown Canada, Quebec and France into
a three-cornered struggle for the prize that eluded America's
best diplomat shortly before its Declaration of Independence
-- the right truly to declare: Montréal, c'est ma
ville.

Because the prior referendum campaigns never
really ended, the next one is already underway even if not fully
recognized. Ironically, the Meech Lake Accord was defeated by
two provinces that were not part of the original confederation
and would likely experience the greatest difficulty should Canada
disintegrate. On the other hand, the 1995 Quebec referendum put
a spotlight on whether "50% plus one" was a sufficient
majority in Quebec to support its separation from Canada.

The Supreme Court of Canada addressed this
issue in an advisory opinion issued in 1998, holding in brief
that the National Assembly of Quebec could not lawfully effect
the unilateral secession of Quebec without first engaging in
"principled negotiations" with the federal government
and the other provinces, but that "a clear expression of
a clear majority of Quebecers that they no longer wish to remain
in Canada" would put the federal government and the other
provinces under a binding obligation to negotiate the matter
in good faith with Quebec. Reference Re Secession of Quebec
(1998) 2 S.C.R. 217.

Limiting its role to "to clarify[ing]
the legal framework" governing the negotiations, the Court
added (at 294-295):

The obligations we have identified are binding obligations
under the Constitution of Canada. However, it will be for the
political actors to determine what constitutes "a clear
majority on a clear question" in the circumstances under
which a future referendum vote may be taken. Equally, in the
event of demonstrated majority support for Quebec secession,
the content and process of the negotiations will be for the political
actors to settle. The reconciliation of the various legitimate
constitutional interests is necessarily committed to the political
rather than the judicial realm precisely because that reconciliation
can only be achieved through the give and take of political negotiations.
To the extent issues addressed in the course of negotiation are
political, the courts, appreciating their proper role in the
constitutional scheme, would have no supervisory role.

Whatever comes, Canada cannot remain Canada
unless the center holds. Ontario, Quebec and Ottawa must continue
not only to cooperate but also to search for a new constitutional
compromise that can command the support of the other provinces.
New strategies are needed to break the impasse between a francophone
population adamantly opposed to assimilation by les anglos
and the rest of Canada unwilling or unable to grant Quebec the
constitutional space that it deems necessary. Failing a new constitutional
agreement, the separatists in Quebec will require more than ever
a referendum strategy with the potential to carry the island
of Montreal by meeting the economic requirements as well as the
cultural preferences of its citizens.

Coordinated provincial gold gram programs
offer the business communities of Toronto, Montreal and Vancouver,
and the political leaders of Ontario, Quebec and British Columbia,
an opportunity to work together on a project that affects an
industry of considerable importance to all three provinces and
would better prepare Canada to enter the post-dollar world. Indeed,
should the Department of Finance and the Bank of Canada rethink
their present anti-gold position, the federal government could
participate as well. The greater the participation, the greater
the potential not only for refurbishing the frayed bonds between
the two founding peoples, but also for creating conditions favorable
to the future rebuilding of Canada's national monetary system
on a foundation of gold.

But if for whatever reason the center does
not hold and another fair chance for constitutional compromise
slips away, an established and successful provincial gold gram
program would provide an independent Quebec with a sound basis
on which to build its own monetary system and enter whatever
new international monetary order rises from the ashes of the
U.S. dollar. In that event, the two most improbable parts of
General de Gaulle's strategic vision would be fulfilled: the
resurrection of New France and the restoration of gold as the
international monetary numéraire.